Cash Is King for Boomer Car Buyers

When your first job dictated a cheapo economy car, you survived having to commute in a compact bucket of bolts. You lived through the humiliation of the station wagon when the kids came along, and escaped with only minor wounds when you graduated to the minivan.

Now that the kids are gone — perhaps along with your hair — all you aging Boomers nearing retirement hopefully have your 401(k)-fueled nest egg to fall back on. So when it's time to buy a car you actually want, what's the best Boomer plan: Pay cash, or finance over time?

Boomers in good financial shape are at an advantage. With cars, like houses, it's a buyer's market. Many well-heeled Boomers will simply pay cash, though some have grown so used to making monthly payments over the years they may choose to keep doing so.

"The rule of thumb, no matter what your age, is that paying cash is always better," said Anthony Giorgianni, associate editor of Consumer Reports' Money Adviser newsletter. "A loan is second and leasing third. By paying cash you avoid finance charges even if it's discount financing.

"If you are paying cash and are only offered a rebate and no discount financing, take the rebate. If you are paying cash and are offered a choice between discount financing and a rebate, take the rebate to save on paying any finance charges, but if you have to finance and have the choice between discount financing and a rebate, take the rebate and arrange financing on your own through such sources as Capital One or E-Loan on the internet, or through your own savings and loan."

Tom Libby, senior director for J.D. Power and Associates, says that, in general, about half of all 55- to 62-year-old car shoppers finance, while about a quarter pay cash. The remainder, 21 percent, lease their cars.

So what will it be? Corvette? Camaro? Challenger? Mustang? Or maybe it's time to sit back and smell the coffee safely secured in a Mercedes, Jaguar or Aston Martin cupholder.

Of course, there's also the possibility you're just looking to get yet another year out of your Chrysler LeBaron.

"This is the time the aging boomer should have the funds for retirement, but do you throw caution to the wind?" said George Pipas, a sales analyst for Ford. "In many cases now, other things are competing for the money. A lot of things have happened to the economy to puncture the safety net."

Experts say, however, that you don't have to spend your golden years in a rusty gold LeBaron.

"Aging boomers wanting to buy the car they always wanted shouldn't have a problem," said John Wolkonowicz, an analyst with automotive research and consulting firm Global Insight.

Use caution, but realize that car dealers need to sell cars to survive. Automakers are closing plants and buying out workers to reduce costs in hope of returning to the ever-elusive profit side of the ledger. As more plants close and fewer workers are needed to assemble cars, fewer dealers are needed to sell those cars.

Experts say your best bet on getting a good deal is to go directly to the dealership and bargain. While buying services or big-box stores may offer what seem to be good deals, they'll likely be drawing on a limited selection of cars provided by a local dealer who is attempting to reduce his inventory of unsold stock, experts say.

"Armed with all the information that's out there about cars from newspapers, magazines and websites, you should be able to strike your best deal by going straight to the dealer," said Joe Phillippi, principal of AutoTrends, an automotive consulting firm.

Lexus is one of the makes that buyers aged 55 to 62 often pay for in cash.

For starters, check financing rates before going to the dealership.

"To keep monthly payments down, the finance man may simply spread the payments out for more months," Wolkonowicz said. "The 48-month loan that was common for decades is almost unheard of anymore. Now it's 60 months or 72 months or even 84 months in some cases.

"A 72- or 84-month loan may keep down the monthly payment, but it'll take years before you have equity in the car. You'll eventually end up upside down and owing more than the car is worth. The 84-month loan is an invite to become upside down on your loan while still paying it off."

That means that if you need a new car, its value as a trade-in will be less than what you still owe on it — and you get to make up the difference.

"If you finance, the loan should always be for the shortest term possible, and never more than 48 months," Consumer Reports' Giorgianni said.

"Anything over 48 months means the car can depreciate faster than you can pay it off, and if you want to trade in on a new one, the amount you still owe is more than the car is worth in trade."

Among 55- to 62-year-olds, the makes that buyers most commonly pay cash for are Porsche, Mini, Lexus, Toyota, Honda, Buick, GMC, Subaru, Scion and Volvo.

Cars that are most commonly financed are built by Isuzu, Kia and Suzuki — an indication that those financing have lower income levels or need to conserve their retirement funds.

The cars that are most commonly leased are Jaguar, Audi, BMW, Saab, Land Rover, Volvo, Lincoln, Mercedes, Infiniti and Cadillac models.

"Higher-priced cars often are leased because the consumer can then switch to a different car after a couple years and always have something new, and because monthly payments are lower than if you take out a loan, though at the end of the lease you then have lease receipts but no equity," Giorgianni said.

After doing your homework, Phillippi has another bit of advice for aging boomers.

"Go out and buy that car you've always wanted," he said. "Enjoy it. You've waited 45 years and deserve it."